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Activist investors have taken a billion-dollar stake in EMC in order to break apart its federation and spin out VMware, according to The Wall Street Journal.

Quoting folks familiar with the matter, The Journalsays Elliot Management Corporation, an outfit financial rating service Hoovers describes as a hedge fund that "takes an activist approach to investing, frequently amassing significant but minority stakes in distressed or underperforming companies and attempting to foment change."

We've quoted Hoovers because Elliott's own site offers no detail whatsoever about the company or its activities.

The Journal says Elliott's has bought about two per cent of EMC at a cost of over a billion dollars and will use that stake to agitate for the sale of VMware.

EMC told the Murdoch organ that it is always happy to chat to shareholders.

Cloudfather Joe Tucci is, however, unlikely to be interested in spinning out VMware because his strategy has been to create a "federation" of complementary companies that operate independently. Tucci's trick has been to make the federation work without its members being accused of being too pally, while also making all members' offerings a little nicer when used together.

One possible way out is to put more of VMware into public hands. EMC floated only about 20 per cent of the virtualisation titan and kept the rest to itself. EMC could conceivably release another 15 or 20 per cent to the markets, score enough cash to keep Elliot happy and still also retain the majority share needed to stay in control of Virtzilla.

If this report is correct, and it probably is because things like this don't make it public by accident, it is a massive vote of confidence in both VMware and EMC. The former is currently trying to grow two new businesses - end-user computing and hybrid cloud - and faces strong competition in both. If Elliot thinks VMware will be worth more as a standalone entity it probably thinks it can succeed in both.

EMC may feel flattered because Elliott could think it will do better without serving as the main pillar of a federation. That's a less likely position for Elliott to hold because the fundamentals of the storage business are changing very rapidly.

EMC's said nothing to The Journal. The Reg's storage desk will be sure to bring you news as this raid plays out. ®